January 13, 2023
By Tobias Mortier
The technique of retrospective legislative regularisation is a disputed one. While the technique takes on different forms in the Belgian legal system, it generally involves the legislator retrospectively regularising a legislative or executive act – and thereby (purposely) influencing pending legal proceedings. Due to its sensitivity in light of the rule of law and fair trial principles, the European Court of Human Rights (‘the ECtHR’) understandably imposes a more exacting requirement in terms of what reasons a national legislature may advance in order to justify its decisively weighing in on judicial proceedings; legislatures must adduce ‘compelling public-interest reasons’. This standard is echoed in the case law of the Belgian Constitutional Court as well. However, the Belgian Constitutional Court has actually exhibited a large amount of deference vis-à-vis the legislature when assessing cases involving retrospective regularisation – and from the judgment in the Grand Chamber case of Vegotex International S.A. it appears as though the ECtHR does not in fact approach retrospective legislative interventions with the heightened level of scrutiny with which it purports to assess it either.
The applicant company, Vegotex International S.A., is a Belgian fashion manufacturer. In 1995, tax authorities found irregularities in the applicant’s tax return for the 1992 fiscal year and accordingly notified the applicant of their intention to impose a 50% tax surcharge on account of the offence of attempting to evade payment of tax. The applicant’s subsequent objections were dismissed and in October 2000 the tax authorities served the applicant company with a demand for payment. Even though the overall amount due was still subject to dispute, the demand was served solely in order to interrupt the limitation period (which sets a time-limit for the initiation of judicial proceedings). This was common practice at the time. The applicant subsequently brought proceedings before the Antwerp Court of First Instance, but both this court as well as the Antwerp Court of Appeal upheld the tax surcharge, with the latter explicitly finding that the State’s entitlement to recover the tax had not become time-barred.
In between these two judgments, the Belgian Court of Cassation had handed down a judgment (later confirmed by three other judgments) in which it had declared the administrative practice of serving demands for payment in the absence of an amount ‘indisputably due’ to be unlawful. In the present case, this would have had the effect that the applicable five-year limitation period would already have expired by the time the Court of First Instance handed down its first judgment. Facing the prospect of a large amount of disputed tax claims becoming time-barred pursuant to the Court of Cassation’s judgment, the legislature felt compelled to consolidate the disputed practice. Hence, the Miscellaneous Provisions Act of 9 July 2004 (MPA) was enacted, in which section 49 ensured that a demand for payment would interrupt the limitation period for the recovery of tax surcharges even where the total amount of the tax debt was not ‘indisputably due’. On the advice of the Council of State, this section was deemed an interpretative legal provision, entailing that it could be applied retrospectively. When the applicant appealed to the Court of Cassation on points of law, in relation to the Court of Appeal’s finding that the limitation period had been suspended, the Court of Cassation consequently substituted the grounds of appeal for section 49 MPA and applied this provision retrospectively to the case at hand, resulting in the eventual dismissal of the applicant company’s appeal.
The retrospective nature of the provision constituted the crux of the case before the ECtHR. Firstly, the ECtHR ruled that, unlike its civil equivalent, the criminal limb of Article 6 was applicable with respect to the tax surcharges imposed on the applicant. This allowed the ECtHR to continue its review under Article 6. As a rule of thumb, it reiterated that
‘the principle of the rule of law and the notion of fair trial enshrined in Article 6 preclude any interference by the legislature with the administration of justice designed to influence the judicial determination of a dispute, save on compelling grounds of the general interest’. (para. 92)
The ECtHR went on to identify a number of such ‘compelling grounds’, including the state interests in combating large-scale fraud, avoiding creating arbitrary discrimination between taxpayers and protecting legal certainty. It noted that the Belgian Constitutional Court had found in its judgment that according to long-standing administrative practice the limitation period had ‘always been interrupted’ in respect of disputed tax debts – that is until the Court of Cassation ruled otherwise (para. 110). However, the Court of Cassation is unable to limit the temporal power of its judgments, so that the legislature quickly signalled its intention to rescind said judgment. Given the legislature’s expeditiousness, the ECtHR ruled that the applicant company never could have truly expected to have its tax debt become time-barred. Instead, the applicant company had ‘hoped rather than expected to benefit from this windfall’, which refutes the existence of any legitimate expectations on its part (para. 119). This led the ECtHR to conclude that the principle of legal certainty had not been undermined.
This conclusion extended to the effects of the legislative intervention as well; since section 49 was applied retrospectively, it had the effect of reviving limitation periods that could be considered to have already been expired. This would normally violate Article 7. However, the ECtHR distinguished the present case from its previous rulings (see most notably this one) by emphasising that the expiry of the limitation period had not yet been established by a judicial decision with res judicata effect. In the absence of such a ruling, and since tax cases were to be separated from the ‘hard core’ of criminal law, the ECtHR ruled that Article 6 guarantees should not be applied as rigorously, thereby circumventing the need to apply Article 7. No violation could therefore be found in respect of the legislature’s retrospective intervention. The ECtHR reached a similar conclusion in regards to the substitution of grounds by the Court of Cassation, thereby endorsing the Chamber’s finding that this had not given rise to any issues as regards the equality of arms between the parties. However, the Grand Chamber did find a violation of Article 6 with respect to the reasonable-time requirement, ruling that the Belgian Government had failed to substantiate its assertion that the complexity of the case had caused the overall lengthiness of the proceedings.
While it remains rather uncommon in Belgian law, the concept of retrospective legislative regularisation (known as ‘wetgevende validatie’ or ‘validation législative’) has gone relatively underreported for long. Particularly little attention has been paid to the position of individual applicants in such cases. However, as exemplified by the present case, this has the potential of yielding perverse consequences. I previously wrote a paper in which I dissected the Belgian Constitutional Court’s inconsistent approach to retrospective legislative regularisations, and in particular the little regard it has for the applicants’ interests in this respect.[i] Hence, this blogpost draws inspiration from the findings in said paper to provide some background information from a constitutional law perspective, before we explore the flaws in the ECtHR’s reasoning in the present case.
Retrospective legislative interventions determinatively impair several core principles which govern a democratic State. The first one, the principle of legal certainty, plays a paramount role in protecting the procedural position of individuals; even the Court has admitted that it is inherent to the Convention acquis itself (see here, para. 238). Applicants have certain legitimate expectations in terms of the lawfulness of their actions and the functioning of the judicial process. By unilaterally altering the content of the contested regulation, the government effectively impairs these expectations. This unilateral aspect further impedes on the equality of arms principle as well. Retrospectively regularising an act or decision is an option only available to the government in order to protect their own interests; individual applicants do not have a similar option at their disposal. On a more fundamental level, this also impacts the separation of powers between the legislative branch and the judiciary (for a more extensive explanation – in Dutch – see here, here and here).
It is with these principles in mind that the European Court has adopted the ‘compelling reasons’ test, so as to avoid that national legislatures revert to this technique all too easily. This test urges legislatures to not just simply pursue any aim; their interest in pursuing this aim through retrospective regularisation must be a compelling one. However, at the level of the Belgian Constitutional Court, this paradoxically results in more deference vis-à-vis the legislature, whereby the Court accepts just about any public-interest reason advanced by the legislature – and simultaneously heavily trivialises and subsequently repudiates every interest which applicants seek to protect. This arguably puts applicants in an incredibly disadvantageous position throughout the judicial process, which, one might consider, actually runs counter to what the ECtHR had originally envisaged when it imposed the compelling reasons requirement. However, with this case, it appears as though the ECtHR has taken a similar stance – and one where it goes quite far in accommodating the legislature, as will be discussed below.
In the present case, the ECtHR found it evident that the legislature aimed to counteract the effects of the Court of Cassation judgment in which it invalidated the administrative practice of serving demands for payment in cases where the tax debt was still subject to dispute, solely in order to interrupt the limitation period. According to its own case law, this should compel it to raise its scrutiny level and solely accept compelling public-interest reasons. For the record, I do not wish to argue against all cases where retrospective interventions strive to reinstate regulation in accordance with the legislature’s original wishes. However, Convention standards must be adhered to, and it appears as though the ECtHR was in fact willing to go to great lengths to accommodate the legislature instead of reviewing its arguments more stringently. This is most evident in two key aspects of the case: the disregard which the ECtHR had for the Court of Cassation judgment, and the ECtHR’s attitude towards the original limitation period.
With respect to the Court of Cassation judgment that gave rise to the legislature’s intervention, the ECtHR put a lot of emphasis on the ‘unexpected nature’ of said judgment (see paras. 117, 119 and 121). Admittedly, it is true that the practice of serving demands for payment with the sole view of interrupting the limitation period was long-standing among Belgian tax authorities. However, one must bear in mind that there already existed a certain level of disagreement as to the validity of said practice among lower courts (paras. 39 and 110). Furthermore, once a case makes it to the Court of Cassation, this Court’s role is not to rule on the facts; rather, it acts as a final arbiter in cases where the law was allegedly not respected – and in that capacity it sometimes must indicate the correct interpretation of a legal provision as well, even when this contravenes existing practices. While its case law is not officially binding, its interpretations of the law de facto become the sole correct ones, meaning that not following the Court’s case law is tantamount to misapplying the law. The Court of Cassation’s purpose in the Belgian legal system is therefore to promote unity in the interpretation and application of the law. In the present case, the Court of Cassation’s judgment must accordingly be understood as the termination of a persisting situation of legal uncertainty – and therefore as a source of legal certainty in regards to the recovery of unsettled tax debts (see also para. 49 of the dissenting opinion of Judges Spano, Kjølbro, Turković, Yudkivska, Pejchal, Mourou-Vikström and Felici).
With this in mind, the applicant company cannot and should not be blamed for expecting to be able to invoke this judgment in order to support its argument that the tax authorities’ claim in respect of it had become time-barred. Rather than a ‘windfall’, as the ECtHR put it, the judgment constitutes a final resolution to a long-lasting period of legal uncertainty, albeit one disadvantageous to the government. The fact that the legislature soon after the date of the judgment expressed its intention to restore the invalid administrative practice does not detract from the legitimacy of the applicant’s expectations in this respect. The legislature’s intention to rectify a legal wrong does not give it a free pass to have the case law of (one of) the highest domestic court(s) not be applied in respect of it – and it is problematic in light of the separation of powers for the ECtHR to suggest otherwise.
Another odd turn in the present judgment is the manner in which the ECtHR assessed the question of whether the authorities’ recovery claim had already become time-barred when the applicant commenced proceedings. The ECtHR found that the limitation period indeed could have been considered to be expired, meaning that the retrospective application of section 49 essentially revived it. Normally, Article 7 would preclude such a revival of an already expired limitation period – as the ECtHR recently explicitly confirmed in an Advisory Opinion. However, the ECtHR circumvented this prohibition on the revival of expired limitation periods by suddenly introducing an additional requirement; the expiry had to be established by a judicial decision with res judicata effect. Not only does such a criterion find no support in the ECtHR’s previous case law (as the dissenters rightfully pointed out, see para. 50), it would actually contravene one of the core reasons why limitation periods exist in the first place. The very raison d’être of limitation periods is to set a time-limit on bringing judicial proceedings for the sake of legal certainty; how then can their expiry be made dependent on the institution of them? Imagine a situation where the perpetrator of a crime has to go to court to ask for a judge to officially declare expired the limitation period for a crime with which they were never formally charged or for which they were never convicted; this sounds laughable at first glance, but this is what this res judicata criterion essentially comes down to.
From the parliamentary records it appears as though the budgetary repercussions of the Court of Cassation judgment constituted the primary motivation on the Belgian legislature’s part to intervene. However, the ECtHR has already stated several times that ‘[a] State’s financial interests alone do not, in principle, justify the retrospective application of legislation’ (see the references in para. 103). From this follows that respondent States must be able to invoke other considerations in addition to financial ones to justify the retrospective nature of their legislative interventions. In this case, this resulted in the government heavily relying on the state interest in preserving legal certainty. However, the fact that this led to the revival of an already expired limitation period and to the legislature essentially undermining the Court of Cassation’s authority would suggest that the retrospective regularisation furthered anything but legal certainty. The fact that the ECtHR endorsed the Belgian State’s reasoning regardless of the legal gymnastics this required, suggests that it attaches more importance to States’ financial interests than its standard formula in the context of retrospectivity may suggest – even if this paradoxically comes at the expense of legal certainty.
At times there may be a difference between the level of scrutiny which the ECtHR ought to apply according to its recurring formulas on one hand, and the level which the ECtHR applies in reality on the other. The case of Vegotex International S.A. appears to be one of these instances. Instead of raising its scrutiny level regarding the compelling nature of the interests adduced by the government, the ECtHR actually displayed an excessive amount of deference and even went so far as to contradict its own case law on the matter. Admittedly, determining how compelling a certain interest is, is a heavily context-specific task, which makes it nearly impossible for the ECtHR to apply a one-size-fits-all approach. However, it behoves the ECtHR to at least adhere to its own standards in doing so; otherwise, the compelling aim of preserving legal certainty might not only be impeded within the Belgian legal order, but across all Contracting Parties to the Convention as well.
[i] See Tobias Mortier, ‘The Belgian Constitutional Court’s heightened scrutiny in respect of aims pursued through retrospective legislative regularisation’ (forthcoming).